Room Rental House Hacking with Adam:
This week, we take on the house hack story of Adam. He was just graduating college for engineering and needed a place for him and his buddies to live in. Naturally, he figured he should buy a house. What he realized was that his buddies, or his roommates, were actually paying the mortgage for him! Adam was now living for free in a house that is getting paid for by his friends. After this accidental house hack, Adam decided to keep investing in real estate and now owns over 12 properties. Tune in to hear all about Adam's room rental house hack straight out of college!
You Can Listen On:
Think and Grow Rich by Napolean Hill
Scott Trench's Set For Life https://www.biggerpockets.com/store/set-for-life-paperback-ultimate
Joe McCall https://joemccall.com/
Kris Krohn https://www.kriskrohn.com/
How to get in touch with today's guest:
Adam's Website: https://setyourrent.
Transcript of the show:
Intro: 00:03 Across the world. People have their housing costs taken away as much as half of their income. Have you ever thought of trying to change that? The good news is there is a way house hacking is real and we are here to show you how other people just like you have made it happen. Welcome to the house hacking podcast and here is your host house hacking expert, Andrew Kerr.
Andrew Kerr: 00:28 I am really, really excited today. I've got Adam joining us. Adam is a 31 year old engineer. He's married and has two young kids. He started off his real estate investing journey with house hacking and he now owns 12 properties. I'm excited to have him on and really learn about how he gets started. So at this point, Adam, welcome on. I really appreciate you taking the time to talk with us today.
Adam Z: 00:51 Hey, thanks Andrew. I love what you're doing here. Happy to help.
Andrew Kerr: 00:55 Thank you. So could you start off maybe with just sort of a high level summary of how old were you, were you married, were you single, the timing period, just high level summary of that first house hack that you did?
Adam Z: 01:07 Sure. I was just graduating in 2010 with a civil engineering degree and I was like, all right, whole goal was to just graduate, get a job and after about a year I had some money. I was like, why don't I just buy a house? I kinda, I kind of call it an accidental house hack. I didn't have any intention of actually keeping it from a longterm, I didn't even know what the house hacking was. So I was like, “Oh, buy a house. Me and my college buddies.” And then once they started paying my mortgage and I realized what it was going on and I was like, “Oh, this is actually something!”
Andrew Kerr: 01:35 Awesome. I feel like that's the way a lot of folks get started with house hacking. They just start doing something and then all of a sudden they realize like, “Hey, this is working out well and now house hacking has really gotten so big where it's pretty well defined.” I'd be like, “Oh yeah, I was actually doing house hacking.” Just didn't realize it at the time.
Adam Z: 01:50 Yup. That's right.
Andrew Kerr: 01:51 Well, let's really sort of start at the beginning. This is 2010 you just finished graduating civil engineer. You said you had a year of sort of saving up some money, so you're already off on a good financial track. It sounds like, where you knew not to spend all of your money.
Adam Z: 02:06 Yeah, I definitely made some of the uh-oh's – bought a new truck. You know when you get a new job and you finally don't have to, you actually start making some income. I did about everything you could wrong to start off with, which like, “Oh yeah, I'll get a new truck.” You start getting all this income. You had nowhere to go. You just start blowing through it. Luckily, the one thing that I did do was was buy this twin home that was close to a university campus here that I ended up buying us as my first home. It was kind of against my girlfriend's advice at that time. She's like, “you don't want a house here. Why don't you get like a nice house that you actually want to live in for a long time?” I was like, “I just want me and my college buddies to party.”
Andrew Kerr: 02:43 Yes. Yes. So you say twin house, is that actually a duplex or just a style of a house in your area?
Adam Z: 02:50 Yeah, they call them twin homes here where it's a, it kind of looks like a duplex, but again, they're, they're technically separate. The only agreement the two is if you're going to change your roof because they're connected, you have to like offer, you have to like go in. So, so the two don't look the same, but for the most, most part they're two separate homes, parcels, everything.
Andrew Kerr: 03:10 So two homes under one roof, but you only owned one side?
Adam Z: 03:13 Yup. With like a fire rated wall between the two.
Andrew Kerr: 03:15 Okay, great. Yeah. Sort of townhouse style in what city was this in?
Adam Z: 03:20 In Grand Forks, North Dakota.
Andrew Kerr: 03:22 Ah, okay, great. So you bought this home about a year after you graduate. Do you remember roughly what you bought it for?
Adam Z: 03:29 Yeah, I bought it for $143,000 and I used back then they did the 80 10 10, you probably remember those Andrew, but I was just remembering that as you as I was kinda thinking about it. I forgot that that was a thing where you know if you're normally getting into it you can do the FHA or you know other things. But I forgot back then I had 10% saved up and I wanted to get rid of the PMI. So I did the 80 10 10 where you 80% loan, 10% another loan, and then just to get out of the PMI and then I paid that other 10% off early.
Andrew Kerr: 03:58 Yeah, they don't seem to do those very often. But back then, I had actually started, my first career was in the mortgage industry and we did a ton of those at a time where it's like 80% first mortgage. Then you do either a fixed rate, second mortgage or a line of credit for 5, 10, or 15% and then you would put down the else. It was just a good way to get around the mortgage insurance. So
Adam Z: 04:18 Yeah. And I thought, well, if I could, I thought that it was at the time was a terrible investment because it didn't even appraise out for the $143,000 that I bought it for. And I was like, Oh great, this is terrible. It came in, um, you know, something, a couple couple grand or five grand less than that. And so at the time it looked like 2012 you're overpaying for this house. I'm like, ah, whatever. You can kind of negotiate back and forth. And now it's my single greatest asset that I probably have.
Andrew Kerr: 04:43 Oh, awesome. So yeah, you, you bought it and you're like, Oh my goodness, this could be a financial mistake, but you just still went ahead and did it anyways. Were you able to negotiate the price down at all after you got the appraisal back or did you end up sort of paying a little bit over appraised value?
Adam Z: 04:57 Yeah, I wish I had known about a thing like bigger pockets or books or other things. It was just kind of blind faith going through and figuring it out without much recourse, and so I ended up not wanting to lose the house, so I think I came in more than what I split the seller for nowadays. I realized that you have a little bit more leverage, especially with they're trying to sell on negotiating. If it doesn't appraise out, just say, “Hey, look, it's not worth that much.”
Andrew Kerr: 05:24 Yeah. You almost had that fear of missing out on it where like, Oh my goodness, I put this time into it. I don't want to lose it over this couple grand. Let's meet in the middle. But yeah, now more seasoned real estate investor, you know, you're like, “Oh I've got a good way to reduce the price even lower now.”
Adam Z: 05:38 That's right.
Andrew Kerr: 05:40 Cool. So you bought it and now, oh, step it back really quick. So before you bought the home, were you still living on campus in a dorm or were you renting a place? What, what was your housing situation like?
Adam Z: 05:50 Oh yeah, I was, so I was single with the girlfriend. I was living in an apartment on campus cause after I graduated we just stayed in our year long lease. And then when it came time we renewed just because we didn't have any other place to really go. I didn't want to go off campus quite yet. And then after that year came up, was kind of enough time for me to save up something and start thinking about buying, buying the house.
Andrew Kerr: 06:13 And was it you and your girlfriend or just a couple of buddies that you were living together?
Adam Z: 06:17 It was me and three other buddies. Yeah. So the girlfriend wasn't with me at that time.
Andrew Kerr: 06:21 And then how much were you paying for rent for that?
Adam Z: 06:25 So, so rent, I'll maybe break down a couple of things. So the original 80 percent mortgage with principal PITI was about 800, the other 10% I think it was like another 150 bucks. And then I got $400 a month rent from each of them. So I was 1200 so I was clearing a couple hundred less, you know, anything going for, for repairs and maintenance, but just overall living basically living free.
Andrew Kerr: 06:52 Awesome. So then before you bought the house, the place you were renting, what, what were you spending on rent?
Adam Z: 06:58 Ooh, that's a good question. I was probably paying close to that $400 a month plus utilities.
Andrew Kerr: 07:03 So something similar, dividing up the utilities between the four of you guys and paying for ish. So you went from 400 a month out of pocket plus some utilities to, having a mortgage with the first second at 950 and that included your taxes and insurance, you said, and here you are bringing in $1,200 a month.
Adam Z: 07:23 That's right.
Andrew Kerr: 07:24 Yeah. That's awesome. You literally, you're making money every single month and completely eliminated your housing costs.
Adam Z: 07:30 That's right. So you look at, you go from paying a 400 and some change to now making, you know, close to 300 and some change, like a $700 swing. And it was at the time I didn't realize it until after a few months now and I was like, Oh, and not only am I paying down my loan, but the home is appreciating and I was like, this is, this is phenomenal.
Andrew Kerr: 07:49 Yeah, you're getting the home appreciation, you're getting the tax write offs for the interest deduction. That was back before the tax law change in 2018 with a higher deduction limit. So you had that, you had a mortgage pay down and you're living rent free. This was like win, win, win and win,
Adam Z: 08:06 If I, if I had to argue what's been my greatest financial decision today, it's been a house hack. Although my engineering job is paid off salary-wise more what I have now done with that property and how I've leveraged it in the future, you know, from seven years ago it just happens to have appreciated extremely well. Now that kind of fuels all the rest of it off. I, I would agree if everybody could start off instead of like, the first thing you did after you graduate was consider if you can do a house hack or even if you could do it beforehand, I would say go for it.
Andrew Kerr: 08:38 I agree with you 100% and that's why I started this podcast. So thank you for that. Uh, involuntary plug. So if, thinking back, you had the three roommates when you're living in this house, I know you said they're all paying rent. What'd you do for the utilities? Did you cover that or did you it between the four of you as well?
Adam Z: 08:56 We ended up just splitting it as well.
Andrew Kerr: 08:59 Okay, so your utility costs were then pretty cheap when you're dividing across four people?
Adam Z: 09:03 Yup. So yeah, I've kind of seen it go both ways where you just kind of charge them whatever the rent would be. This way. Even in future rentals, having them have a little bit of skin in the game with heat or other things, even though they're people that I knew, eventually they turned into people I didn't know which turned a little bit scary, which we'll probably talk about later. But just having them have a little bit of skin in the game with water, heat, just, I always like having that.
Andrew Kerr: 09:26 Oh yes, I got, you know, if I got to pay a portion of the bill, I'm not going to like make it super cool or super hot or be like, I'll just go throw on a sweatshirt instead of turning up the heat. And same thing. It's like, well I'm not going to take that hour long shower because I gotta pay for that bill. So I agree with you 100% on that one. Yep. All right, so you, you've got the property, you've got your roommates. How'd you find your roommates? Were they all friends or did you end up doing any marketing to get those roommates?
Adam Z: 09:52 Yeah, they happened to be all the people I was living with on campus as the three roommates with four of us in the three bed. It was only a three bedroom place at the time. We were still living like college people where you're trying to skip by on, uh, on costs. So yeah, they all, they all came with.
Andrew Kerr: 10:08 And then the, the twin, uh, the side you are living in and owning, was that a four bedroom or is it still three bedroom?
Adam Z: 10:14 Nope, it was a four bedroom. We had somebody, we had somebody living in the living room, so he actually got a bedroom now.
Andrew Kerr: 10:20 Oh, so he got the upgrade!
Adam Z: 10:22 Yup. Right.
Andrew Kerr: 10:23 So how was this conversation going with your friends? Was it just all of a sudden one day like, “Oh, I bought a house or when our lease is up I'm moving in. Would you like to come and you've got to pay 400 bucks?” Or like how did that all go?
Adam Z: 10:35 It a lot of my friends were teachers and with me being the engineer, I was probably pulling down the most out of anybody from a salary perspective. And then from a bank being able to loan from me and realizing that I wanted to stay there long term, they were at the drop of a hat would go to whatever teaching job they had. And since I lucked out and got a good civil engineering job in town, I knew that I was staying. So they didn't want to pull the trigger on it, but they were all for all. If we, we'd get a house, it'd be way better than living in this apartment.
Andrew Kerr: 11:03 Yeah, absolutely. All right, so you have them as y'all, your roommates, you're collecting rent. It was an easy transition to get them over. How'd you actually collect a rent from them?
Adam Z: 11:13 I don't know if there was Venmo and PayPal back then. I think half of them were cash. Half of them were, if they bank the same amount, just kind of transferred it. Uh, that part I'm a little bit hazy on, but for the most part it was nothing, nothing too difficult on my end.
Andrew Kerr: 11:29 Did you ever have any challenges collecting rents from your friends or is it like, “Oh, you know, Adam, he's my buddy. I'll just, uh, you know, wait a week or two to pay him,” or had everyone sort of moved on to the professional jobs as teachers and had consistent paychecks or did you have any challenges at that point?
Adam Z: 11:45 Yeah, so there, there definitely was challenges. When I first moved in, it was three of my really good buddies. Then they took a job, you know, I didn't have them on a lease or anything. They were just living there until whenever. And they're like, all right, now I'm leaving. I was like, well, let me say I got an extra room. Now what should I do? So then I'd have, you know, a friend be like, Oh, I know this guy who needs spot. And then he would kind of move in and then he, after another person moved out, I was like, Oh, the friend of the friend recommends another friend who needs a spot. And then it took three degrees of freedom to get a bad roommate.
Andrew Kerr: 12:14 Ah, okay. So start it off with the close friends, then the acquaintances, and then it was like, all right, the bad guy finally slipped in. And did you have to do any eviction or is he just not a good roommate and didn't pay consistently?
Adam Z: 12:27 Uh, yeah. I don't know if it's, I don't think I actually evicted him. I think I just fought, filed a small claims suit against him where it was like, you know, he just seemed like a normal guy paid, you know, a couple months and then he's like, Oh yeah, I'll get it to you, whatever. And I was like pretty naive and I didn't think that people ever just didn't pay rent. And so then eventually after he'd been there for a couple months it's like, all right, this is it. No more, no more free loans and you're just out. So then he left and I was like, are you planning on paying any of the back rent that you lived here for three or four months free? And without getting much of an answer, I was like, all right, I kind of want to take him to small claims court filed that, but of course never got anything.
Andrew Kerr: 12:58 Yeah, sometimes it's tough to win in small claims. So I know you said when you first got your buddies that came in, there was no leases. They were just sort of month to month as that started to move through those different circles of friends. Did you start to use leases at all?
Adam Z: 13:13 No, not until I moved out of that home and moved in some new true rentals or turn it into a true rental without me living in there, did I actually have a signed lease.
Andrew Kerr: 13:24 And then what about deposits? Did you take deposits or is it like, Oh, it was my friends, no deposits. I'm not worried about it.
Adam Z: 13:29 Yeah, you're right. No, no deposits.
Andrew Kerr: 13:32 I think that happens to a lot of us, especially anyone that does the house hack with the room rental. That's how I did my first one as well, was uh, house hack, townhouse, room rental. And I was like, Oh, the buddy can come in, no deposits, just give me the rent. You know, the first week of the month, it'll be good. Don't worry about signing leases, any of that fun stuff.
Adam Z: 13:49 Yeah. Just things you don't even really think about of covering yourself or having any sort of written agreement in place.
Andrew Kerr: 13:55 I know, I know. I'm always shocked how I didn't get in more trouble or open myself up to, more, more liability at that point when it was so loose. All right. So you've had these roommates you sort of cycled through. How long was it from when you bought it and moved in with your three buddies to when you moved out?
Adam Z: 14:16 Three years of, I bought it in 2012 and then moved out in 2015
Andrew Kerr: 14:21 okay. And over that time period, did you have any big expenses, maintenance expenses, you know, damage for like a tree, fall through the roof, you know, any of those sorts of things?
Adam Z: 14:31 There was a big one. I, you know, the blower on the AC started getting funky and because the house was built in 1997 and it was, you know, along that 12 to 15 years, I just opted to replace the whole AC furnace, combo, they, they kind of, try to package that together. And so I ended up doing that. That was far the business visit, biggest expense, which was probably five grand up here for what it costs to put all that in. But for the most part, other than that, there wasn't like siding or roof or fridge or oven or I was things that went wrong.
Andrew Kerr: 15:02 Just real minor stuff other than that big thing?
Adam Z: 15:05 Yep.
Andrew Kerr: 15:05 So earlier you said when you graduated with your civil engineering degree, you out and you bought the new truck, you blew some money, when you started going from paying rent to having no housing costs and bringing in a little bit of money, you know, what'd you do with that sort of at that time, which would have been equivalent to this windfall every single month? Did you blow it? Did you save it? What was your thought process?
Adam Z: 15:27 It was, it all went into paying off the truck, which wasn't terrible, but the decision to get it and the price that I got it at probably wasn't great. And traveling, doing some other things that were a little bit fun, but for the most part it was, I didn't have any like save 10% or anything like that. It was, Oh let's just pay off the truck debt, cause I knew that one was there so by the time we moved I had that all paid off.
Andrew Kerr: 15:49 Yeah. So you at least did something positive with it, right? Not start knocking out some debt.
Adam Z: 15:53 Yup. And then I didn't buy more debt. That was, that was probably the good, the good thing. I didn't get a boat or something like that.
Andrew Kerr: 15:59 Yeah, yeah, yeah. If you can avoid more debt and pay down debt, that's a good place to go. Alright. So you've had this three years. One big thing came up. Roommates were generally pretty good until you got with that one bad guy. Overall, it doesn't sound like it was that bad of a experience.
Adam Z: 16:14 Nope. The whole house hack. Like I said, that I have such a great feeling for it that if I could have, if I had to realize what I had done and then once I learned from some of my friends who did that almost religiously where they would live in one for, I don't even know the exact terminology of it cause I'm not an expert actually. I just accidentally fell into it, but they would sculpt one to the next to the next, and they get all these great terms and loans a little down and they keep running through it. So I just thought it was phenomenal. Certainly helped me out.
Andrew Kerr: 16:40 Yeah. So then why did you decide to move out? What, what was your thinking at that point? Why did you decide to make a change?
Adam Z: 16:48 We'd gotten married.
Andrew Kerr: 16:49 Ah, that'll do it right. That'll do it.
Adam Z: 16:51 Yep. Big, big life event. I figured it's usually marriage or a kid or, so it wasn't, it wasn't that I got married, so we got married, but then we knew that we were going to start a family and it was like, well, we're kind of in the college spot, you know, my wife and I were like, well, maybe we don't want to be here long-term. So then we made what I would call another probably dumb decision. We bought our forever home that we lived in for two years.
Andrew Kerr: 17:13 So did your wife ever live with you in that first house hack or you guys always had your separate places and then decided to go buy your forever dream home after you got married?
Adam Z: 17:23 Nope. She, uh, she, after she got married, she moved in and it was just us for probably seven months.
Andrew Kerr: 17:29 And while you're dating, what was her impressions of what you're doing with this? I own this house. I'm renting it out to all these different guys. Was this like, Oh, you need to grow up and stop being, you know, like your college days, or she or she like, Oh yeah, you know, he's got the good job. He owns a property already and it's not costing him anything. You know? What were her thoughts of all this?
Adam Z: 17:48 Again, initially it was, well this isn't, this isn't really a home to her. You know, her vision of probably all of us of what we've grown up for and what we get accustomed to and what you call a home is probably like this nice like home that our parents had after they worked for 30 or 40 years and what you grew up in, and I realized everybody's situation is a little bit different, but you're kind of putting yourself in their position at age 50 or 60 with you at age 20 like, Oh, I shouldn't be able to just get this attached to stall garage with this huge fence in four bedrooms as a 21 year old and it's no, that's not exactly how it works on what we were doing. So she was more like, well, let's just get a home that would be more of a home type. And I was like, I just want something with a bunch of bedrooms.
Andrew Kerr: 18:32 I think it's so interesting that you say that because the whole time I was investing, I rarely ever actually owned my own primary residence. I spent a lot of time living in my rentals or having these weird house hacking situations and sort of through my twenties it was, my mom was, well, why don't you just buy a real home like everyone else? It was that typical sort of thing of like, you know you're doing something different and that's not what you're supposed to do. You're supposed to do this thing over here. And then it wasn't till one day my mom was talking to her friend who was a realtor and all of a sudden the light bulb just switched for her where it was like her, her friend was like, you do know your son owns more property than like 90% of people. And my mom was like, “Oh, I can actually be proud about this now!” So yeah, it changed.
Andrew Kerr: 19:19 And then same challenge when me and my wife started dating, you know we lived in separate places and then when we were moving to New Orleans together I, she knew I was in the real estate. It was always my thing and I said, look, let's rent a place so we can figure out the part of town that we like, but I want to do a house hack. It would have been my third house, how hack or our first house hack together and we had that sort of rub where she was always looking for this is my forever home and I was, this is an investment. And I really remember we went into the tile store. All of a sudden she disappeared. I'm into like dollar a square foot tile and she's over in the $20 a square foot tile section?
Adam Z: 19:58 Yep.
Andrew Kerr: 19:59 Yeah. All right. So you guys got married, you moved into your dream home and then sold it after two years. It's sounds like there's a little bit of a story here.
Adam Z: 20:07 Yeah, I mean you think you can plan out. I think that that's what I've learned. Is you think you can plan out for a long period. But really looking at anything more than five years is probably about as long as you want to go. At least in my interim, just with job changes, especially when we didn't have kids and you know, if you're going to get married or if you have a job or you realize you don't like where you're living, there's, there's so much that can change in that time period. So we bought this, you know this just, huge square footage, way bigger than we needed. And I went from living, you know, almost rent free to now paying a mortgage that was triple of what I previously had. And so then I was like, Oh boy, did we, what did we just do here? So that's when I got into like Dave Ramsey and was thinking about, okay, now I've got to pay off this whole house. And then things kinda changed from there. Once we got a, uh, new job offer in a different city and then I actually kept that one as a rent to own.
Andrew Kerr: 21:03 Oh, that's really interesting way. So at that point then when you moved to the different city, you had two, two properties, your first twin home that you had bought and now this forever home that's now a rental.
Adam Z: 21:13 Yeah. My, my thought was this is way more expensive than when anybody's ever gonna pay in rent. It wasn't like the traditional layout of what a rental would be. It was like a really nice home, you know, really nice neighborhood where you don't get like the same rent to price, like the 1% rule or however you want to look at different rent and gross price ratios. But I was like, you know what, let's just try it and offered it as, well you can rent it for a couple of years with the idea that they're going to buy it because they didn't have the right credit tips to close on it then. And that's kind of where it went.
Andrew Kerr: 21:47 Did they end up buying it?
Adam Z: 21:49 They're still in there.
Andrew Kerr: 21:50 Oh, they're still in there paying. And so what are they paying for rent versus your, your mortgage cost on there?
Adam Z: 21:55 That one's pretty slim. I'm paying a mortgage of like 1900 and they're renting it for 2200
Andrew Kerr: 22:03 Got you. So you've got a little bit of room in there, but if some maintenance issues come up or a big cap X come up, it's going to eat that cashflow up pretty quick.
Adam Z: 22:10 So when we did, when I learned about lease options or rent to own, I put the maintenance and repair under a certain value on them as the leasee. And there's a, you have to get a little bit tricky with state and city century code on what you can can and can't ask them to do. But that's where I've gone a little bit more now outside of house hacking, which is for a, for another story. But that's how I kind of got into that game.
Andrew Kerr: 22:36 Very cool. Thanks for sharing that. So you're breaking even on this property in good months, you're making a little bit of money. And then what were you getting for rent when you moved out of the, the first property that you bought?
Adam Z: 22:48 I didn't, didn't do it very well. We moved out in January, which in Grand Forks, North Dakota, where it's minus 20 for a high, not a good time to try to fill it as a rental.
Andrew Kerr: 23:00 Oh yeah. Did it sit empty for a couple of months?
Adam Z: 23:02 It did. So we, you know, we thought like, Oh this is what we could probably get. And then when it was empty for a full month, I was like, Oh well this, now I'm paying two mortgages. So I was like, Oh great. So I just slashed the price to, I think it was like they got it for like 1,150 or $1,150 so I was getting 1200 plus, you know, me renting there and I slashed it all the way down to that. The people who walked in there, they're like, I'll sign the lease right now if you give it to me for it was, it was that.
Andrew Kerr: 23:29 so they got lucky. They knew the situation. They're walking into that like, Hey, this is a good deal at this price.
Adam Z: 23:34 It now rents out for 1750 currently.
Andrew Kerr: 23:36 Oh wow. Yeah. Yeah. So now you still got that. Have you refinanced the mortgage since then? Are you still paying the 950 between the first and the second?
Adam Z: 23:45 So right now, yeah, the, the, the tens paid off. So I still have about $800 mortgage on there. But right now I have, you know about a hundred thousand equity position in there. So I have a line of credit around 50 or 60K that I'm then using to put down as my down payments for my next or for, for my, as I continue to grow my portfolio here as my slush fund for real estate properties.
Andrew Kerr: 24:09 Well it's, so the property's appreciated enough and now you're getting even higher rent where it's still covering all the costs. You're making a little bit of money and now you've got this equity line that you can tap into to go buy future properties.
Adam Z: 24:21 The single greatest investment I've ever made by far.
Andrew Kerr: 24:23 I see now why you alluded to that earlier where it's like one of the best financial decisions that you made because you just keep like leveraging it over and over again to help you grow your position financially.
Adam Z: 24:34 And part of it is luck. You know, if you think about in 2012 to now just general appreciation, we're a little bit isolated here in North Dakota where if the whole market tanks, we kind of just do our own thing cause we have oil money. Yeah. So it's, it's kind of nice. We don't go up by anything more than three and a half percent and we don't go up less than anything at two and a half percent. It's basically 3% appreciation per year. But just with that, it's kind of rock steady, but just seven years of paying off principal and letting it appreciate, it's just, you don't realize how fun it is every year that goes by you just time is your best friend.
Andrew Kerr: 25:07 Yeah. Especially as the mortgage goes on, more and more of that payment actually goes towards principals, so then it starts accelerating even more.
Adam Z: 25:14 Yup. Yeah. That's exciting.
Andrew Kerr: 25:15 So it sounds like you made a lot of good financial decisions and you haven't been blowing money if you are all of a sudden at 12 properties. So give me you know, sort of a good summary of how'd you go from your first home to your dream home that turned into a rental to now you're at 12 properties and what's your housing situation like now? Are you now in sort of a permanent good home? Not how hacking, I'm guessing with the wife and the kids.
Adam Z: 25:41 Yup. So I'll, I'll try to run through them pretty quick. So you know, we've got that first one, did the other one, we bought another one in Grand Forks as just a pure rental. This one we figured out that it's much better to buy a property and not have it vacant. So we actually had friends who were like, Hey, if you buy a house for me, I'll rent it. Which I already had somebody lined up as an investment property. So we did that and I started telling people about what I was doing. So then I formed in with a partner so I could have less cash in to do more deals. So that was in 2017, we formed an LLC and once we started doing, then we did, you know we, our goal was two a year and we're averaging now about four and a half.
Andrew Kerr: 26:19 And are you still taking the same model of finding the tenants before you buy the property?
Adam Z: 26:24 Yup. That's our, that's our new niche is we'll have somebody go pick out a home on the MLS that they want to eventually own, but they're either an entrepreneur or they have poor credit. So then they, we buy it for them. They sign a lease agreement with the option to buy it for us, you know, two to five period. And then we just basically buy that home for them. We close on it and they move in the next day.
Andrew Kerr: 26:47 That is amazing. Are they giving you any sort of deposit or money that you can use for closing costs or what's that look like on their end then to get into?
Adam Z: 26:55 Yeah, so the terminology that I use in rent to own is either a lease with an option to buy or a true contract for deed or a land contract. So if it's a lease with an option, you know, there's maybe three or four grand that they put down. If it's a contract for deed, we typically ask for 5% down, which can be, you know, our medium household is about 220,000 here. So they'd be bringing, you know, close to 10 grand as a deposit for doing a contract for deed, which I then have in my hand prior to even closing on the property is contingent upon me buying the property for them. Um, but that's, that's our current model now.
Andrew Kerr: 27:32 Yeah, it seems to be working really well for the two of you then.
Adam Z: 27:35 Yeah. The problem is we're growing too fast and the banks don't want to loan us money is our current struggle.
Andrew Kerr: 27:40 Yeah. That that tends to happen. And then, you know, so are you just living off the cash flow now that you're making from these properties or you still have your civil engineer job?
Adam Z: 27:50 Yup. Still have the civil engineering. The, the idea was we were going to invest every single dollar of profit until we had enough properties where it replaced both me and my business partners full time income at that point then you just pulled the trigger and you're like, “Oh, I think, I think we made it.” But until then if, you know, some housing market was to crash or my wife has a pretty large security gland where I would have probably jumped ship long, you know, maybe uh, a month or tomorrow, you know, I realized that with two young kids, a wife probably makes sense to stay in the job at least for now doing that. But the intent is we could possibly do there. I do enjoy being an engineer, so it's just kind of an added benefit of having this at 31 years old.
Andrew Kerr: 28:29 Well, I think that's a smart way to do it. Especially, you know, only being 31 let that real estate money keep, you know, compounding and keep rolling it and keep really investing it. And they'll just keep getting bigger and bigger and bigger. And you can live a comfortable lifestyle off your civil engineer job that you don't hate. Maybe you don't completely love it, but you're like, “Hey, I like this job. I can keep doing this, provide security for my family and now building this giant real estate nest egg for the future.”
Adam Z: 28:54 Yeah. That the struggle with me is once you do your first one, you get hooked. It's like a drug. Like, you know, there's, there's so many fears of like, Oh, what up this one. If they do that, and once you've done any eviction, once you've done repairs, once you kind of understand the system, you're like, well, hold on a second. I could do this for a year. You know, still live in it. All the benefits of that. And then afterwards, you know, with our model of trying to not have property managers and still be able to sell it, like with you know, minimal hours per week. You're like, man, this thing's like my average dollar per hour of what I'm getting paid to actually keep these properties with the appreciation pay down in rent. It's just extraordinary that I was like, I can't afford not to do more.
Andrew Kerr: 29:34 Yeah, definitely. Now, do you have any like big financial pictures you're you're trying to get to or goals? I know you said you your real estate sort of empire to be able to offset or cover or replace the salary that both you and your partner have in your normal jobs. I mean, I know right now sort of in the personal finance community, this idea of financial independence or FIRE is really big. Do you have any of those goals out there or is it sort of your big goal right now is just to get to where you could leave your normal job in, have enough from your real estate?
Adam Z: 30:06 It's, it's definitely, I'm currently in that, but I'm starting to see something a little bit larger where I like the idea of being financially independent like that is just awesome. Nobody can fire me or tell me one way or another I can give to whoever I want. The next level then is going to be okay, what does Adam truly called to do and how can I provide the most value in the world? Whether that's getting paid for it or volunteering or whatever. So that's where I see the next level and and me and a non-business friend both set a goal to be able to donate $1 million a year as an ambitious financial goal.
Andrew Kerr: 30:42 That is a pretty amazing goal to have. It's not like this, you know, I want to make two, three, four, 5 million a year and have the private jet. Well, you might still have some of that out there. It's, I want to be able to give away $1 million a year. That is amazing.
Adam Z: 30:57 Thank you. That one, that one drives me. I realize that's a, that's a long goal, but it's one that pulls me.
Andrew Kerr: 31:04 No, I, I think we actually have more in common than I think either of us realized when we first started talking. So I used to be in the mortgage industry and then I started, had a big career change and started working in the nonprofit industry and that's why I decided to go really heavy in real estate was I loved the nonprofit work. You just don't get paid anywhere near what you actually bring in value. And I was like, I'd love to still keep doing this, but I also, you know, I like to fly business class when we go to Europe. I try to do it via travel hacking and credit card journey, but we like a little more comfortable of a lifestyle, you know, we don't want to have to worry about things. So real estate investing has been able to do that. And one of the goals that I have, me and my wife, we always keep going back and forth of like, should you actually quit the nonprofit work, go really heavy all in real estate for five years? And then you can go back to the nonprofit work and donate an even more money. So my sort of short term goal is to raise $25 million for charity. When I last looked up the number, I was about 17, 18 million. So I think once I get to that goal of having nonprofit jobs in fundraising, using that skillset I have and have raised 25 million for charity, then I'll decide, you know, do I want to stay, do something else different. But yeah, I love that goal. If you're wanting to give away $1 million in a year, and here I have this goal of trying to raise this really large amount of money for charities.
Adam Z: 32:25 Oh, that's pretty cool. I'll have to afterwards too or to connect you with a couple people, um, that I know of that are in that same world. You guys can probably hit it off pretty well.
Andrew Kerr: 32:33 Yeah, that would be awesome. So now that we're sort of wrapping up this house hacking section, I've got sort of three final questions for this part. You know with the first one is looking back and I feel like you probably already touched on this a couple times. What do you think your biggest sort of success is with the house hacking project that you did?
Adam Z: 32:52 The fact that I pulled the trigger actually did it in a time of uncertainty was great and I, and I was still iterated. It's been the single greatest financial decision I've, I've made to date.
Andrew Kerr: 33:03 Awesome. Is your wife on board with the real estate? You know that's a question I actually didn't ask. I'll sort of cut this in here is what is her thoughts now where you know, you're up to 12 properties, you've got a partner, you formed this LLC. What's her impressions and thoughts on it all?
Adam Z: 33:17 First of all, at the house hack it was kind of like, ah, I would have done something a little bit differently, but we wanted to keep that as a rental. Fought me tooth and nail for about six months, like it was to the point of what do you mean you didn't read like all of these. Then I found bigger pockets after I'd lived into a couple of years and I started reading all the books on it and I was, you know, wide eyed, ambitious. I was like this is the way to do. And she is like, um, you know there's going to be tenants in there that's not as such thought for a long time to now it's a she, there's a no lack in trust model to it now where she doesn't even know we're closing on two properties next week and she couldn't care less. But she is onboard.
Andrew Kerr: 33:56 Yeah, she's on board. It's your little world. Yeah, that's, that's the way my wife is some of the times. All right. So the second question here for this part is what was your sort of biggest challenge or what would you look at is you know, your biggest failure during the house hack period, where if you could go back and change it or do it differently, what, what would you do?
Adam Z: 34:14 I think I would have done it with a little bit more intentionality. You know, if, if you know that you're getting into one, I kind of accidentally got into it and it happened to payoff. But if you could have built some intentionality of like, Hey we're going to do this and then we're going to do that to how it fits into your overall plan in life as opposed to just kind of reacting to things that happened to go cause it could have gone poorly and I would've maybe never got into real estate. But if I had intentionally had a plan of what I was going to do more thoroughly and probably known more about the process and the pros and cons so that I could have educated myself, it kind of goes hand in hand. Cause that was definitely a con. But by that it was kind of baptism by fire because I was doing it all. I didn't have the knowledge of anybody else and I, I learned firsthand a lot of these lessons that I now take with me.
Andrew Kerr: 34:59 Yeah, yeah, I agree 100% I think it's not only with house hacking, but if you're just a little more intentional about what we're doing, where we want to go to make a huge difference. And that's really why I want to get this podcast started is folks that say I'm okay trying to do something differently. I want to look at my housing costs and let me just start to think through this and here's all these great case studies of folks that have done it, what they did right, what they did wrong so they can be a little more intentional about it.
Adam Z: 35:27 Yeah. One, one thing in there, you know you're going to learn about all the great things about it and you're going to learn probably some of the horror stories. I don't know if they'll be on this podcast or if there'll be other ones, but you know, you'll probably hear one or two and that can be a detriment to some people cause they'll just cling on to anything risky of this. And they're probably the people that don't ever do a house hack to begin with. But there is, you have to have some acceptable level of risk even if it, you know, whatever probability that that might happen.
Andrew Kerr: 35:54 Yeah. I think if you're going to get into any sort of real estate investing and house hacking, like you said, you're going to have those challenges and every person we've been talking to at the interview, they always seem to run into some bigger bump. I mean, you had that one bad tenant and didn't pay for months on end, but you survived and you actually came out ahead financially. So yeah, definitely don't let that fear stop you from, uh, house hacking. All right. So the third question is, would you do it all over again if you could?
Adam Z: 36:20 Absolutely.
Andrew Kerr: 36:21 Yeah. I knew that that was going to be your answer. Awesome. All right, so before we let you go, this is the point in the show where we actually ask all of our guests a set of final six questions and we like to call this the fast six. It's rapid fire questions. Are you ready for it?
Adam Z: 36:38 Let's do it.
Andrew Kerr: 36:39 Awesome. So number one, what is your favorite personal finance blog or book that you've read recently?
Adam Z: 36:51 Recently I re-read Think and Grow Rich. There's a lot of, there's a lot of good stuff. There's some crazy stuff, but for the most part, like just a great book.
Andrew Kerr: 36:59 I, I love, uh, the note, uh, Napoleon Hill's book Think and Grow Rich. It's one of the first ones that went on my bookshelf and it's still there, uh, you know, a decade plus later.
Adam Z: 37:08 It's impressive.
Andrew Kerr: 37:09 Alright. Number two, what is your favorite real estate related blog or book? And I'll sort of let you give me two parts to this cause I feel like number one might be Bigger Pockets.
Adam Z: 37:20 Yup. I mean that's what first got me into it and I've been less into Bigger Pockets now. But from an initial information man, they have the story of everybody in there. And any reason, anything that's been done? Absolutely, yeah. They're kind of the go to. On a book, there's probably two of them. The initial one, I think it was Scott Trench's Set for life where he almost talks through your concepts, you know, kind of the house hacker of how to, how to do this. That was a really good one that you know, depending on what phase that you're in, you know, can be a really good one. If you could start that off, that would be a good one. And then recently I've been into more lease option books and there's like Joe McCall or Kris Krohn that have done some books.
Andrew Kerr: 38:00 Yeah. Wonderful. I actually bought Scott Trench's book right when it came out. I think it was a wonderful book and aligned exactly with my thinking on it. So you're the actually the first person that mentioned that one, uh, for, for our season one of the shows. So I'm glad you brought it up and I'll include a link in our show notes for folks that want to go check that out. Alright, so onto number three, uh, what's been your favorite travel destination so far?
Adam Z: 38:23 When I was in high school, went to Rome, that was phenomenal. Florence, Venice, Assisi, my wife and I have plans five year anniversary. Not sure if we're going to go back there, but next year probably go somewhere abroad, maybe south.
Andrew Kerr: 38:36 Very cool. So how'd you actually like Assisi? One of the first times I went to Italy, that was one of the small places that we stopped. What was your impressions on it?
Adam Z: 38:44 It was beautiful and I couldn't believe, so I'm sitting here, so you can't tell, but I'm six foot six. Back then for like seeing like Francis of Assisi house, like where they were like four foot walking underneath doors. I felt like a giant, in the Hobbit or pick your poison. But man, it was, I could not believe that people were four feet tall back in the day.
Andrew Kerr: 39:04 Yeah, I was really glad I went. I don't know if if you had heard, but there was an earthquake in Italy several years ago and that big cathedral there on the square was actually, a lot of it got demolished. So I hate that that happened, but I also feel glad that I was able to see it before it had that damage. Alright. So number four. So what's next on your travel vacation list? You sort of alluded to that with your, you know, five year anniversary coming up. What's on the list? If you don't do Italy, what else is going to be on there
Adam Z: 39:33 With two young kids, you have to get creative. You don't go, you don't go very far when you have a three month old at home or our plan. So it's like you can get away to the cabin, you can get to grandparents or do something that's kind of big. But now we're planning out a year where we might do an all inclusive resort in the Caribbean or something next September when it's our five year anniversary cause we've never done something like that. And I think it'd be cool.
Andrew Kerr: 39:55 Oh, if PingMe when you start playing in that, uh, my wife and I have gone to a couple in the past two or three years and there's some we've liked and some we've really, really liked. And then one or two we might avoid. So I'm happy to give you some recommendations on those.
Adam Z: 40:07 That'd be great, Andrew.
Andrew Kerr: 40:08 Awesome. And then number five, what is the biggest bucket list item that you haven't accomplished yet?
Adam Z: 40:15 That I haven't accomplished yet is I want to be a 100% self sufficient as an entrepreneur.
Andrew Kerr: 40:21 That's a pretty good a bucket list item to get to. And then number six, what is your favorite life hack?
Adam Z: 40:28 There's probably two of them. Number one, I didn't realize that people can come out and wash your car or pick up your car and take it as an oil change where you're at. They will come out to your house and wash your car and bring two people, bring it back to the shop, given an oil change and drop it back off at your location. Blew my mind. Didn't know what people did that I was like, I am forever using you. Save me an hour of driving there, waiting in that dumb line, sitting in there, going inside. It's like a three hour deal. I was like, for my time, I don't care if you charge me double. That's, that's like three hours of my life I never get back every six months.
Andrew Kerr: 41:04 Very cool. I did not know, uh, that, that was actually a thing, or at least they don't have that here in New Orleans. And you said there's two life hacks that, so if that's the first one, what's the second one?
Adam Z: 41:14 The other one is a, is a business one. Um, so if you're buying a property in an LLC, you can get creative with seller credits. So I want it to, for anybody that's buying properties, and I realize this is a house hacking one, but from, you know, normally if it's $100,000 house, you probably can't ask much more for like three or 4,000 back as a residential loan. If you buy it within an LLC and you get the right bank, you can get really creative. So what we do is we buy the house for 110,000 and ask for 12,000 or 13,000 back so that our down payment doesn't have to be so high.
Andrew Kerr: 41:48 Yeah. You basically mark up the property and then as long as you hit your appraised value, it's there. And what Adam was alluding to for the folks that that sort of missed that. If you do a conventional loan, Fannie Mae, Freddie Mac, FHA loan, they limit the amount of concessions that you have. I can't remember off the top of my head what the percentages, but they only let you have so much of a concession, so if you get that sort of a bank that's lending to your LLC, I think that's a really cool business hack and I've done that on some of my properties where you basically mark it up or instead of negotiating down further in the price, you basically take your concession so you have to bring less cash to a closing. Awesome. Well Adam, thank you so much for being on the show. It was great talking with you. I loved your accidental house hack story and how it turned into you now building this real estate empire. I think it was really, really cool. So thank you for sharing it.
Adam Z: 42:38 Great. Thanks for having me on. It was fun talking about it.
Andrew Kerr: 42:41 Thank you so much.
Outro: 42:44 Thank you for listening to the house hacking podcast. For more up to date information on house hacking to access links and resources mentioned in today's show, and connect with the guest and host, head over to www.fibyrei.com that's www.fibyrei.com where your house hacking journey became.
Be sure to check out our Ultimate Guide to House Hacking for a great overview of the different styles of house hacking and different types of tenant bases.
Check out the home page for “The House Hacking Podcast” here.